The Australian Industry Group Australian Performance of Manufacturing Index (Australian PMI) increased by 1.1 points to 50.9 in October, signalling a very mild expansion across the manufacturing sector.

October’s shift to mildly expansionary conditions in the Australian PMI was driven by stronger growth in exports (up 6.0 points to 56.0), sales (up 3.6 points to 55.0) and new orders (up 6.4 points to 54.7). Readings above 50 indicate expansion in activity, with the distance from 50 indicating the strength of the increase

Three of the eight manufacturing sub-sectors expanded in October (that is, above 50 points in three-month moving averages): printing & recorded media (down 6.0 points to 56.8), machinery & equipment (up 1.3 points to 54.1), and petroleum & chemical products (up 2.7 points to 55.4). The food and beverages sub-sector lost some steam but remained stable (down 2.4 points to 50.4).               The metal products sub-sector slipped back into negative territory (down 4.1 points to 47.2), while textiles & other goods (down 7.9 points to 32.5), wood & paper products (down 9.8 points to 38.8) and non-metallic minerals (down 0.7 points to 45.3 points) all moved further into contraction.

“The lift of the Australian PMI into growth territory, while only by the narrowest of margins, is nevertheless positive news after the inventory-related adjustment of a couple of months ago,” said Ai Group Chief Executive, Innes Willox. “Stronger exports, domestic sales and new orders in October are encouraging, although growth remains relatively narrowly based, with contractions in the important metal products and non-metallic minerals sub-sectors broadly offsetting expansions in the machinery & equipment and petroleum & chemicals sub-sectors while the largest manufacturing sub-sector – food & beverages – trod water in October.”

The selling prices sub-index moved back into contraction in October (down 4.4 points to 47.9), despite input prices (up 6.3 points to 66.3) and wages (up 2.1 points to 59.0) adding further to cost pressures. This aligns with comments from manufacturers about difficulties in passing on cost increases.

“The manufacturing sector would welcome the boost to investment that a reduction in the company tax rate would provide – even if it was limited to businesses with annual turnovers of less than $50m,” Willox added.